Notes From Underground: The Unemployme​nt Data (A Tale of Two Numbers)

As all the media reported, the U.S. unemployment numbers clouded and befuddled the markets as the non-farm payroll (NFP) was much lower than expected, yet the unemployment rate dropped to 9.o percent to 9.4 percent. This is the second consecutive month that the headline unemployment rate dropped 0.4 percent. However, both reporting periods showed very anemic JOBS GROWTH. Ben Bernanke and other FED officials have said it would take jobs growth of more than 200,000 a month to begin to bring the rate down. Even though the rate dropped 0.4 percent on a NFP number of 36,000-plus, it raises more questions than answers.Some analysts believe that the drop in the rate is due to a large amount of discouraged workers dropping out of the labor force. Other analysts believe the softness in the NFP was related to the poor weather that plagued a large part of the U.S. It seems that this number could be spun any which way, but by the end of the day the TREASURY MARKET accepted the positive outlook for the unemployment data. Manufacturing jobs did increase a robust 49,000 and although average hours worked was weaker than expected, the average hourly earnings increased 0.4 percent.

The long end of the DEBT future markets closed on its lows and the 2/10 steepener went out on its highs. The yield curve is shouting that the FED is on hold as the data is too weak to promote a change in policy. As a result, it’s the long-end that takes the brunt of selling from the improved growth crowd and the rising influence of the global bond vigilantes. As the curve steepened, the EQUITIES found a rally but the DOLLAR didn’t follow the script and actually rallied. I caution that the DOLLAR is presently subject to the vagaries of European politics and the fluid political situation in Egypt.

The strongest currency of the day on all the crosses was the CANADIAN DOLLAR, which rendered the unemployment data from the North even more interesting. If it was the worst of times in the U.S., it appears that it’s the best of times in Canada. It was a completely opposite situation as the Canadian economy was expecting a jobs growth number of 15,000, but it actually came in at 62,000 and most of the gain was in full-time jobs. However, to further befuddle us even more, the Canadian unemployment rate actually rose to 7.8 percent to 7.6 percent, a diametrically opposite result from the U.S.

The Canadian IVEY PMI report showed a very anemic number and far below the consensus, which clouded the data further. This was, again, in contrast to the U.S., which had earlier in the week showed a very solid PMI number that was not in sync with the unemployment number.

When the data is so badly skewed it is certainly the best of times and the worst of times. The worst of times for the fundamental traders, but the best of times for the technicians. If the markets are confused, one wonders what the thinking is at the FED: A historic steep yield curve during a massive FED buying program on the LONG-END.

If the U.S. economy fails to respond with more robust job growth, the FED is going to be in a very precarious position. Europe gives the U.S. some breathing space by diverting investors’ attention, but the DOLLAR BULLS will not always have Paris.